Long-Term Care and Medicaid Eligibility

Long-Term Care and Medicaid Eligibility

Should I choose long-term care insurance or Medicaid?

What is the difference?

Let’s start out with some definitions.

Long-term care insurance (LTC) is an insurance product that you can buy that helps provide for the cost of long-term care beyond a predetermined period. Long-term care insurance covers care generally not covered by health insurance, Medicare, or Medicaid.

Age is not a determining factor in needing long-term care. About 60 percent of individuals over age 65 will require at least some type of long-term care services during their lifetime. But once a change of health occurs (like the onset of Alzheimer’s disease) it may no longer be possible to purchase long-term care insurance.

What can long-term care insurance offer you?

Long-term care insurance generally covers home care, assisted living, adult day care, respite care, hospice care, nursing home and Alzheimer’s facilities. If home care coverage is purchased, unlike with Medicaid, long-term care insurance can pay for home care, often from the first day it is needed. Home care can pay for a visiting or live-in caregiver, companion, housekeeper, therapist or private duty nurse up to seven days a week, 24 hours a day (up to the policy benefit maximum).

Like other services covered by insurance, long-term care insurance must be purchased before the insured requires the services covered under the policy. This means that many individuals will purchase the policy and never actually benefit from it. The likelihood of this happening is greater among younger individuals, whose chances of requiring long-term care are lower.

Why purchase long-term care insurance?

Many individuals may feel uncomfortable relying on their children or family members for support, and find that long-term care insurance could help cover out-of-pocket expenses. Without long-term care insurance, the cost of providing these services may quickly deplete the savings of the individual and/or their family.

Premiums paid on a long-term care insurance product may be eligible for an income tax deduction. Benefits paid from a long-term care contract are generally excluded from income.

How much does long-term insurance cost?

The cost of long-term care insurance is determined by factors such as the type of policy, the age of the insured and the time period the policy covers.

Policies that provide coverage for an unlimited period will obviously cost more than policies that provide coverage for a limited period. Policies purchased at an early age are less costly than policies purchased later, because a younger person is more likely to pay premiums for a longer time. The cost of the policy may also be affected by the preferred location of the service – whether in-home, at a nursing home or at some other facility providing professional care – and whether the coverage is comprehensive or basic.

But what about Medicaid?  What is Medicaid?

Medicaid was established as Title IX of the 1965 Amendment to the Social Security Act. Medicare was established at the same time as Title VIII of the Act.

Medicaid is a health insurance program for certain low-income people. These include low-income families with children, aged (65 and older), blind or disabled people on Supplemental Security Income, low-income pregnant women and children, and people who have very high medical bills.

What will Medicaid pay for?

Medicaid will generally pay for certain health services and long term care services such as nursing home care for those with low incomes and limited resources. Medicaid has limitations on the amount of assets a person may own and the amount of income a person can receive each month before they are eligible. Eligibility and services vary from state to state.

Medicaid is funded and administered through a state-federal partnership. Although there are broad federal requirements for Medicaid, states have a wide degree of flexibility to design their own programs. All states, however, must cover these basic services: inpatient and outpatient hospital services, laboratory and X-ray services, skilled nursing and home health services, doctor’s services, family planning, and periodic health checkups, diagnosis and treatment for children.

History of Medicaid

Medicaid enrollment almost doubled over the period of 1990 to 1998, from about 25 million U.S. recipients to about 40 million in 1998. Today, 47 million people, over 1 in 7 of all Americans, are receiving Medicaid.

The number of long-term care enrollees went up by 80% between 1990 and 1998, while spending on long-term care increased 3 times faster than enrollment.  From 1990 to 1998, Medicaid spending for long-term care skyrocketed an astronomical 225%.

Federal Medicaid grants to States now account for the fifth largest federal budget item, after Social Security, defense, federal debt and Medicare.  Federal Medicaid is growing at such a fast rate it will soon overtake Medicare and move into fourth place.  State Medicaid budgets in most states account for the second or third largest budget item expenditures after education and transportation.

A doubling in expenditures every 7 years, which we experienced this last decade, would eventually bankrupt government budgets. The growth of Medicaid spending, including long-term care, cannot possibly go unchecked without some sort of future offsetting reduction in services.

Medicaid generally does not cover long-term care provided in a home setting or for assisted living. Although people who need long-term care often prefer care in the home or in a private room in an assisted living facility.

Medicaid will cover custodial care in a nursing home in all states. Custodial care is required when someone cannot perform some or all of the activities of daily living (ADL) without assistance:

  • Dressing

  • Bathing

  • Transferring

  • Walking

  • Feeding

  • Toileting/continence

Medicaid generally requires you to be unable to perform at least two of these six ADLs independently – much like long-term care insurance policies.  If you qualify for Medicaid by meeting the ADL requirement and your state’s income and asset requirements, you may be able to use Medicaid to pay the entire cost of care in a nursing home.

Comparing Long-Term Care Insurance and Medicaid

Aside from imposing no income and asset limits (because you purchase it), long-term care insurance offers options and flexibility not found in Medicaid benefits. But Medicaid does have a few benefits not offered by most long-term care insurance plans.

The following chart summarizes the key general differences between these two ways of funding LTC needs. (Keep in mind that all Medicaid programs and LTC insurance policies are different.)

Coverage/Benefit

Medicaid

LTC Insurance

Nursing-home stays

Usually

Usually

Coverage from the first day in a nursing home

Usually

Rarely: too expensive and not tax-qualified.

Coverage for as long as needed in a nursing home

Usually

Rarely: too expensive

Coverage in any nursing home

Rarely: many places do not accept Medicaid

Usually

Coverage in a home-care situation

Not in most states

Available option

Coverage for adult day care

Rarely

Available option

Coverage for assisted-living facilities

Not in most states

Available option

Coverage for Respite Care

Rarely

Available option

Access to all services at a nursing home

Rarely: often no access to private or spousal rooms, shopping trips and personal-care items (family must pay for these things)

Usually – to private or spousal rooms available, trips, personal care and whatever else the policy benefit covers

Ability to stay in one place

No guarantees: you can be moved if a facility stops accepting Medicaid patients, or becomes too full

Yes, as long as the facility is open. Plus, you can change facilities at will

Nursing-Home Stays

Both long-term insurance and Medicaid provide nursing-home coverage, but some long-term care policies cover other types of care in addition to, or in lieu of, nursing-home care.

In many states, nursing-home stays are all that Medicaid covers. This means, if you are covered by Medicaid, staying at your own home is not always an option – even though care given at home may be less expensive and often what you really need and want. Compared to this inflexibility of Medicaid, long-term care insurance can be a great advantage.

Not all nursing homes accept Medicaid patients. If your facility of choice doesn’t accept certain types of state or federal funding, it might not have to take Medicaid patients either.

Medicaid may not cover a private room, or allow you to have your spouse as a roommate. There may even be a special “Medicaid wing” or floor in the facility.

Medicaid does pay for your stay in a facility for as long as you need the care. Long-term care insurance, on the other hand, does so only if you elect the lifetime option and chose a benefit level high enough to cover a lifetime of costs.

Medicaid also covers your costs from day one, while long-term care insurance can do so but only at a very high cost, imposing an elimination period. Also, long-term care plans are not tax-qualified, so your benefits are likely to be taxable.

Further, if you own a home, and you receive care while your spouse remains in your home, some states may force your heirs to reimburse the costs of your care from the sale of your home when the community spouse – the one who stayed in the home – dies. This has come as a rude shock to many heirs!

Assisted-Living and Continuing-Care Facilities

Sometimes, before you quite need nursing-home care, you may need more assistance than you can get at home, or maybe you just want to live in a retirement-oriented facility. Assisted-living centers can provide you with an apartment and offer as much assistance as you need (for a price, of course). You can get housekeeping help, meal preparation and more.

Continuing care takes assisted living a step farther by having an on-site nursing home, so the transition can be an easy one.

Again, if assisted-living or continuing-care facilities appeal to you, long-term care insurance can help provide for you.

Adult Day Care

Often, an elderly person’s family, instead of sending that person to a nursing home, can choose to provide much of the needed long-term care yet cannot be at home in the daytime due to work obligations.  The elderly individual may not be able to stay home alone because of dementia or an inability to complete ADLs.

Adult day care can solve this problem. This community-based care is often provided by churches and community centers. The premise is simple: drop the person off in the morning and pick him or her up in the late afternoon or early evening.

Long-term care policies offer the option to cover this care, while Medicaid does not pay in most states.

On Becoming a Medicaid User

The process of deliberately adjusting your financial situation to get Medicaid appears simple: gift your assets or put them into certain trusts.  Now you’re poor, so Medicaid will have to pay for your needs.

But if you go this route, make sure you know what you are forgoing. Here are the things to keep in mind:

  • Not all facilities accept Medicaid patients.

  • You may not be able to get care at home.

  • If you come out of the nursing home your assets are probably not available to you.

  • Do you want a roommate (who is not your spouse)?

  • Is getting out into the community important to you?

  • Do you really want to give all your assets to a trust or your heirs while you’re still living?

  • You need to speak to an eldercare attorney regarding :look-back” laws that might apply to you that restrict shedding assets.

Both Medicaid and long-term care have their benefits (and drawbacks).  Ensure that all of your needs are covered before choosing.

It may be beneficial to purchase your long-term care insurance at an early age, since the premiums are usually lower for younger individuals. However, remember that long-term care insurance is not for everyone and is usually purchased by younger individuals only when they have a history of family illness that is covered under these policies. Bear in mind that coverage may be denied if the potential insured is already at a stage that requires long-term care.

But should I purchase long-term care insurance?

Long-term care insurance, some may argue, only makes financial sense for those who have sufficient assets to disqualify them for Medicaid. The opportunity cost of paying for premiums, can also play a major role in determining whether carrying long-term care insurance will be cost effective.

For example, some of the best policies offered through an insurance company that cover a variety of care options, sufficient financial payout and with inflation protection, may cost around $3,000 per year for a 50-year-old and $5,000 per year for a 65-year-old in 2006, according to the AARP. These premium levels are currently increasing.

Therefore, if the insured is placed in a nursing home for two years, a total benefit of $127,750 will be paid out, assuming the benefit pays out $175 per day. But the premium outlay for this coverage would total approximately $60,000 over 20 years for the 50-year-old. So, the benefit received, in this case, would only be about two times what the policy owner paid in premiums.

The national daily average for a private room in a nursing home in 2006 is $206 per day. That means without any insurance coverage, you would be looking at $75,190 annually. Therefore, if the insured has been paying premiums for two years and then files a claim, he or she will come out further ahead.

Most experts recommend that it is better to go without long-term care insurance than to pay for a policy with inadequate coverage. A policy that does not contain these provisions is, in many cases, a waste of money, because the major provisions of most competitive long-term care policies are what provide the real protection from long-term care expenses. Furthermore, being able to choose the method of care received, by the insured, is also important, as few people want to be put in a nursing home to receive services that could be provided by in-home care.

Most planners recommend that a client, with limited means, focus on saving for retirement rather than paying for long-term care coverage. Of course, those who will have smaller budgets, once they retire, may not have enough assets to require insurance. The requirements to qualify for Medicaid differ from state to state, but in order to qualify, elderly individuals, and couples, are restricted to the amount of assets that can be owned. Therefore, lower income retirees, with relatively fewer assets, may qualify for Medicaid.

There are also alternative sources of long-term care funding available through annuities and universal life insurance products.

The two critical components of long-term care

The long-term care equation has two main components: medical and financial. Both issues must be evaluated using some combination of personal preference, probability and statistics in order to determine a sensible course of action. There isn’t one right answer for any couple or individual; many will have several options to choose from based on their risk tolerance, and personal situation.

Finally, remember that paying premiums is less costly than paying long-term expenses out of your pocket.

Before purchasing a policy, be sure to compare rates, features and benefits offered by different insurance companies. More importantly, since the purchase of long-term care insurance involves the consideration of a myriad of factors, be sure to consult with your estate or financial planner, attorney and insurance agent about the choices that are appropriate for you and your family.

Other Enhanced Insurance articles related to Long-Term Care Insurance:

Long-Term Care Insurance for People with Disabilities

When Should I Consider Getting Long-Term Care Insurance

Minnesota Governor Mark Dayton’s Letter about Long-Term Care

How Much Does Long-Term Care Insurance Cost

Will Medicare of Medicaid Cover My Long-Term Care

Looking Into Long-Term Care Insurance

What Is Long-Term Care

How Can I Save Money on Long-Term Care insurance?

Where Can I Buy LTC Insurance

Long-Term Care Information

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